What the heck is an insured mortgage?!

All industries are full of jargon and the mortgage industry is no different. Because of a slew of rule changes over the last few years there are a few terms that are thrown around a lot more often. Insured, insurable, uninsured, and hey to make things fun let's add high ratio insured, conventional insurable, and conventional uninsured. Ummmmm excuse me what?

Let's start simple. What is an insured mortgage?

In Canada if you are buying a home and your down payment is less than 20% then by law your mortgage must be default insured. Default insurance is not to be confused with a creditor insurance policy that is to protect you from a loss of income. Default insurance is a lump sum premium paid to protect your lender in the event that you default on the mortgage. That premium is often added to your mortgage balance and paid off over the life of the mortgage. The premium is calculated as a percentage of your loan amount, which varies from 0.6-4.5% depending on the size of your down payment. The smaller the down payment, the higher the premium.

Here's the thing about an insured mortgage, these days if your mortgage is insured you will get a better rate than if it isn't. Now here's the catch, not all mortgages can be insured. The largest mortgage insurer in Canada is Canadian Mortgage and Housing Corp (CMHC), they're a crown corporation, read government owned. Back in 2016 the Department of Finance changed the rules around which mortgages can and cannot be insured. They made it so that a mortgage on a rental property or a refinance can no longer be insured, neither can mortgages with an amortization greater than 25 years (and a whole bunch of other stuff but that's for another post).

So what does this mean for you? It means that if you want to refinance to access your equity, purchase a rental property, or have an amortization of 30 years then expect to secure a slightly higher rate than your friend who just bought a home with 5% down.

Does this mean you should refrain from doing any of those things? Heck no. The difference in rate is not material, and in the grand scheme of things your rate is not the most important aspect of your mortgage.

I think we'll leave it at that for now. If you have any questions as always please don't hesitate to reach out mortgages@carolineroach.ca.

Ps. You may be wondering how the dog picture ties in, it doesn't. I just really like dogs and thought it was cute 🤷‍♀️ you're welcome.